November 28, 2012

You Can't and You Shouldn't

I just took a call from someone asking if once he gets his
final check for the year (and accompanying check stub) if he can file his tax
return. No he can’t and neither can you.

The IRS requires that a copy of the W-2 must be attached
with a paper filed return and a copy of the W-2 must be kept with the signature
sheet of any electronically filed return. You have to wait until you receive
all your W-2s and other informational documents to file your returns.

Once I tell a caller that, the next question is generally
about an ad they’ve heard on television about a using a paystub to get a
holiday loan. While I haven’t heard one yet this year, I’m sure there are or
will be some companies offering that kind of program. But you want to
understand they are not filing a return. The IRS won’t be accepting
electronically filed returns until at least January 22.

Tax Preparation companies which offer these holiday loans
use your paystub to estimate what your Federal tax refund will be and base a
loan on that amount. The money comes from the bank or finance company with
which they have an arrangement. You then pay the loan back by a specific date.
You will still have to file a tax return once you have all your return
documents.

If this is something you are interested in doing, please be
very careful. Many of the companies doing holiday tax loans are reputable
(while they might gouge you with high fees.) But they are other companies that
will rip you off. Before you try a holiday tax loan, please look at Instant Tax
Service. I wrote a couple of posts about them last year and there are links at
the bottom of this post. The Department of Justice filed permanent injunctions
against the company, owner and several franchisees. Besides their outrageously
high fees, ITS also filed returns without the client’s permission based on
fraudulent documents they (ITS) created. Many times, they left the client
having to payback money they never received or fighting to straighten out the
mess that ITS created.

I understand that most of us could use extra money this time
of the year and it’s tempting to try to get an advance on your tax refund but
using a holiday loan from a tax preparation company can cost you high fees. And
if the firm isn’t reputable it can force you to deal with the IRS to straighten
out the mess they create. Talk your local bank or credit union and see what
they can do for you. It’ll be cheaper than any tax prep office.

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Comments

Unless the fine print has changed, the Holiday Loans made from a W-2 is simply a loan, not an obligation to return to the creditor to let them prepare ones taxes (and charge outrageous fees). They want you to think that the loan is tied to your refund but the paperwork signed only obligates the debtor to repay the creditor. It cannot require your tax refund/tax preparation.

The loan is due and the interest rate is likely as high as the credit card debt you may be paying off, but it's only relationship to your refund is your credit worthiness.

Disclaimer

Disclaimer

A reader should seek advice from an independent tax adviser with respect to the information on this blog based on the reader’s particular circumstances. This advice is intended to be general information and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed here.